How can I increase the equity in my home?

Hi! I want to put a 2 bedroom addition over my garage. The problem I have is trying to find a bank or credit union or contractor to help. I have very little equity in the house. Any ideas? The remodel would increase the sq footage by 800 and make the house a 4 bedroom, three bath home.

- Frank

Frank, I assume you are hoping to use a home equity loan to pay for at least part of your remodeling project. If so, once you have met with a lender, they should send an appraiser to take a look at your home. When that happens, the appraiser takes quite a few things into account when determining the market value of the house. The home's condition, its size and number of rooms, type of HVAC system, and many other factors come into play when figuring its worth. In addition, the desirability of the neighborhood and recent sales prices of similar homes in the area are used by the appraiser to come up with a final figure.

My suggestion would be to go ahead and take this first step. While home values have been stagnant and even declined in many areas during the recent economic downturn, in some markets they are finally rising. I'm not sure where you live, but there could be more equity in the home than you think. And if the appraisal seems low, don't be afraid to ask for another inspection from another appraisal company. Many lenders use independent appraisers for their inspections. I have been amazed over the years at how much the same home's value can fluctuate depending on who does the inspection.

If you still don't have enough equity in the home to get a loan for your project, ask the appraisers for suggestions on how its value can be increased without a lot of investment. A fresh coat of paint on your exterior trim and sprucing up the front landscaping may help, and both improvements should be budget-friendly. If your front door has seen better days, installing a new energy-efficient model shouldn't break the bank, especially if you make it a DIY project.

However, a lot is going to depend on how much is currently owed on your mortgage and the current value the appraiser assigns to your home. Lenders are being much more cautious these days about home equity loans. The appraisers should be able to tell you about how much the various improvements can add to your home's value and whether they might improve your chance of getting a loan.